Currency traders showed a mixed reaction to the batch of fresh data coming out of the world's largest economy, and the major exchange rates may hold steady throughout the morning trade as Fed Chairman Ben Bernanke is scheduled to testify in front of the Senate Banking Committee.

British Pound: U.K. Business Output Weakens, GBP/USD Searches For Support

Currency traders showed a mixed reaction to the batch of fresh data coming out of the world's largest economy, and the major exchange rates may hold steady throughout the morning trade as Fed Chairman Ben Bernanke is scheduled to testify in front of the Senate Banking Committee. Household spending in the U.S. increased for ten consecutive month in April, while producer prices expanded at an annualized pace of 6.8% to mark the fastest pace of growth since September 2008, and the Fed may raise its fundamental assessment for the region as growth and inflation gather pace.

According to Credit Suisse overnight index swaps, investors are still see the FOMC raising the benchmark interest rate by 25bp over the next 12-months, but Fed Chairman Ben Bernanke may soften his dovish tone for future policy as the private sector activity improves. With central bank head expected to speak in front of Congress later today, comments from Mr. Bernanke could highlight what the FOMC intends to do during the second-half of the year, and currency traders will surely react to his testimony as the central bank retains a neutral outlook for monetary policy. However, the Chairman may refrain from saying too much in terms of the committees' exit strategy, but we may see Mr. Bernanke continue to maintain a cautious tone for the real economy given the protracted recovery in the labor market.

The Euro extended the sharp decline from the previous day as the European Central Bank maintained a balanced tone in its monthly report, and the single-currency may weaken further going into the end of the week as policy makers struggle to contain the sovereign debt crisis. The ECB pledged to monitor fundamental developments 'very closely' as the economic outlook remains clouded with high uncertainty, and sees inflation rising 2.5% this year, while GDP is expected to increase 1.7% in 2011. However, the International Monetary Fund warned of an economic contraction in Greece and Portugal as the group forecasts growth in both regions to contract 3% and 1.5% respectively, and went onto say that monetary policy in European 'can afford to remain relatively accommodative' as price growth is expected to fall back below the 2% target in 2012. As ECB President Jean-Claude Trichet softens his hawkish outlook for future policy, the EUR/USD looks poised to test former resistance around 1.4000 for near-term support, but the exchange rate may continue to retrace the advance from earlier this year as it appears to be carving a head-and-shoulders top in May.

The British Pound failed to maintain the upward trend from earlier this year as the economic docket continued to show a slowing recovery in the U.K., and the GBP/USD may face additional selling pressures during the North American trade as currency traders continue to curb their appetite for risk. As businesses in Britain scale back on production, the ongoing weakness within the private sector could lead the Bank of England to maintain its wait-and-see approach throughout the third-quarter, and the GBP/USD may continue to pare the advance from earlier this year as the exchange rate appears to be forming a head-and-shoulders top as well. However, as price action continues to hold above the 23.6% Fib from 2009 low to the high around 1.6200-20, the pound-dollar may consolidate in the days ahead as we have the U.K. consumer price report paired with the BoE minutes on tap for the following week, but a break below this level is likely to expose former resistance around 1.6000.

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